Variance Optimal Hedging for continuous time processes with independent increments and applications

Details Variance Optimal Hedging for continuous time processes with independent increments and applications Variance Optimal Hedging for continuous time processes with independent increments and applications

2009-12-02

arxiv.org/abs/0912.0372v1

Economy

Quantitative Finance

Computational Finance

Scientific paper

For a large class of vanilla contingent claims, we establish an explicit F\"ollmer-Schweizer decomposition when the underlying is a process with independent increments (PII) and an exponential of a PII process. This allows to provide an efficient algorithm for solving the mean variance hedging problem. Applications to models derived from the electricity market are performed.

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